The episode features Secretary Scott Besant, U.S. Treasury Secretary, providing a comprehensive first-year review of the Trump administration's economic policies and fiscal management. Besant previously worked as a hedge fund manager before joining the administration.

The conversation covers the administration's progress on reducing the budget deficit from $1.8 trillion to $1.78 trillion in fiscal year 2025, with projections showing deficit-to-GDP ratio declining from 6.8% to mid-fives for the calendar year.

Besant discusses the strategic use of tariffs for both national security and revenue generation, addressing misconceptions about their inflationary impact and explaining how they've been leveraged in negotiations with China, Mexico, and Canada on issues like fentanyl trafficking.

The discussion explores Federal Reserve policy, including quantitative easing's role in exacerbating inequality, the upcoming Supreme Court case on presidential tariff authority, and the administration's plans for Fed reform including potential leadership changes.

Besant outlines 2026 priorities including tax cuts for working Americans (no tax on tips, overtime, Social Security), the introduction of Trump accounts giving $1,000 to every newborn, and regulatory relief for small and community banks to increase lending capacity.

Fiscal Year 2025 Results and Deficit Reduction Progress

"We came down from about $1.8 trillion to 1.78" in fiscal deficit, representing a slight contraction that "wasn't much, but much better than the $2.0 trillion that was estimated" - Besant

Calendar year 2025 showing strong progress with nominal growth close to 6%, bringing deficit-to-GDP ratio down from peak of 6.8% to mid-fives range

"I have said that I would, by the time President Trump leaves office, that we would like to have something with a three in front of it, which will stabilize the deficit, the GDP, which is an important number, and enable us to start paying down debt" - Besant

Biden administration spent 40% of government spending in Q4 2024 in unsuccessful attempt to convince voters of economic health, creating distorted baseline for comparison

Besant characterizes 2025 as "setting the table" with important victories and policy announcements, while "the feast and the banquet's going to be in 2026"

Tariff Strategy: National Security and Economic Rebalancing

San Francisco Fed study with 150 years of data demonstrates "tariffs do not cause inflation, that they're actually disinflationary" - Besant

"President Trump has used them for national security" with tariffs becoming integral part of national security policy, enabling negotiations when rates increased to 35-50% - Besant

Spring 2025 fentanyl tariffs on Mexico, Canada, and China brought all three countries to the table, resulting in partnerships to combat the crisis and measurable drops in fentanyl deaths

October 8th Beijing announcement of worldwide export license on any product with 0.01% Chinese rare earths would have "ground the Western trading system to a halt," but Trump's threat of 100% tariffs prevented implementation - Besant

"The Chinese business model is based on volume, it's based on employment, it's based on a five-year plan" - Chinese continued producing despite tariffs, validating administration's strategy - Besant

Ultimate goal is to balance trade and reshore manufacturing, with tariff revenues serving as "payback for the imbalances that have gone on over the years" before eventually declining as manufacturing returns - Besant

Failure of imagination among critics who believed China would become more like the West after joining global trading system in early 2000s, despite Xi Jinping's 2013 shift back to "hard communism, Leninism" - Besant

Supreme Court Case on Presidential Tariff Authority

Supreme Court ruling expected January or February 2026 on presidential authority to impose tariffs under International Emergency Economic Powers Act (IEEPA)

Key framing question from Justice Alito or Kavanaugh: "you were telling this court that the President of the United States can do 100% embargo, but he cannot put on a 1% tariff" with plaintiff answering yes - Besant

Justice Barrett's comment "if we undo this, it'll be a mess" interpreted by Besant as "leaning toward looking for a reason not to undo it" due to refund complications

"President has absolute ability, or the executive branch has absolute ability through 301s, 232s, and something called 122s to raise revenue on trade. So using the IEPA is not a stretch of that authority" - Besant

Besant expects nuanced ruling rather than binary 0-1 outcome, with potential implications for national security applications of tariff policy

Adverse ruling would be "against the American people" and "a hit to national security" with revenues being replaceable but national security applications jeopardized - Besant

Main Street Economic Challenges and Affordability Crisis

Net approval rating down 30% on inflation and 18% negative on economy since summer, representing "lowest on two key issues" for administration

"Cumulative CPI during the Biden administration was 21, 22 percent" with Strategus Research's Common Man Index showing working families facing much higher increases on essentials - Besant

"We understand that the American people are hurting" and won't engage in "vibe session" gaslighting like Biden administration officials including toxic Paul Krugman and Alan Blinder - Besant

Gasoline prices coming down substantially with oil down and gasoline following with lag, expected to continue declining trend

Rents down approximately 5% as effects of "10 to 20 million undocumented people coming into the country" reverse, with Wharton study showing 1% population increase correlation to rent spikes

Real incomes up 1.8% since Trump took office and "starting to accelerate" as other component of affordability equation alongside price level control - Besant

Besant's message to Americans: "We need more time. This is not a one-year project. It's going to take two or three years, and we're not going to gaslight you"

Federal Reserve Policy and Inequality Engineering

Fed created in 1913 as response to Panic of 1907 which "made the crash of 29 look like a day at the beach" with JPMorgan personally stepping in during Knickerbocker crisis - Besant

Post-Great Financial Crisis regulations created "paralysis in the economy" with over-constricted regime preventing lending even when assets became affordable, benefiting only asset owners with capital - Besant

"Fed began what we call QE or large-scale asset purchases" starting March 6 or 8, 2009, buying long bonds to create liquidity with Ben Bernanke famously telling everyone to "go buy equities" - Besant

"I called the Fed the Engine of Inequality" as QE created two-tier economy between asset holders and non-asset holders, with Fed exacerbating inequality despite it not being part of their mandate - Besant

Karen Pettibone's book The Fed, The refref-book-the-fed--the-engine-of-inequalityEngine of Inequality documents this phenomenon from center-left perspective, validating Besant's analysis despite political differences

Fed losing approximately $100 billion annually because "no one told the Fed that you're not supposed to buy high" - purchased bonds at high prices with low interest rates creating negative arbitrage - Besant

MIT study shows "42% of the great inflation was caused by the budget deficit" with another 17% from increased inflation expectations, totaling almost 60% traceable to fiscal policy - Besant

"Biden administration issued all this debt and the Fed bought it" representing shift from Modern Monetary Theory (MMT) to "Modern Monetary Practice" (MMP) - Besant

Fed Reform and Leadership Transition Plans

Candidates being interviewed include Kevin Warsh, Kevin Hassett, Chris Waller, and Rick Reid, with Besant conducting interviews with 11 of "most knowledgeable people on economics, the Fed, monetary policy"

"Everyone wants to see a smaller footprint and more predictability" from the Fed with all candidates discussing moving back toward traditional Fed role and getting Fed "back into the background" - Besant

Fed operates without congressional appropriation, "just prints its own money and it has its own budget" including own police force, with cost overruns on D.C. building that would trigger Capitol Hill hearings for Treasury - Besant

Candidates discussing elimination of "dot plot" (summary of economic projections) and restructuring regional banks with potential specialization or "center of excellence" model rather than overlapping functions

Besant advocates for range-based inflation targeting rather than precise 2% target, noting "economy, the markets are biology. They're not math, they're not physics" with nonlinearities and complex systems

"Once we are back to two, which I think will be in sight, then we can have a discussion, is it much smarter to have a range" but changing target while above 2% would damage credibility - Besant

Fed Governor Stephen Myron made "very interesting measurement points on inflation" including how financial services component increases when stock market rises despite portfolio management costs potentially declining

Strategic Industries and National Security Economics

Administration identified "five to eight strategic industries" requiring government intervention, comparable to World War II industrial policy as "we are in an economic war" - Besant

"Majority of pharmaceuticals are made overseas, majority in China or India" representing critical national security vulnerability exposed during COVID - Besant

"97% of the upper-level precision chip manufacturer, the advanced chip manufacturers, is made in Taiwan" representing "greatest economic threat to the world economy, to the U.S. economy, more than the Arab oil" - Besant

COVID served as wake-up call showing "elongated, free-flowing supply chains, wherever they may be" were not optimal and "most efficient is not always the best" for national security - Besant

"Chinese became unreliable suppliers. India and some of the other countries, they acted surprise, surprise, in their national interest" during pandemic, validating reshoring strategy - Besant

Boeing expanding Charleston, South Carolina plant by 50% for Dreamliners as result of trade deals and tax policy, exemplifying capex boom turning into employment boom

2026 Tax Cuts and Working American Benefits

Tax bill completed July 4th with benefits "retroactive to January 20th" for working Americans, creating setup for "gigantic refund year in the first quarter" as workers didn't change withholding - Besant

President Trump's non-negotiable campaign promises to working Americans included no tax on tips, no tax on overtime, no tax on Social Security, and deductibility of auto loans for American-made cars

"Traditional Republicans didn't like his campaign promises to working Americans, and the president never yielded on those" - Besant led administration's team on Capitol Hill for negotiations

Households could see substantial refunds in early 2026 depending on income level and family structure, providing immediate Main Street economic boost

Corporate tax benefits combined with individual tax cuts creating "very powerful combo" expected to accelerate 2025's capex boom into broader employment expansion - Besant

Trump Accounts: Universal Equity Ownership Initiative

"By giving every child $1,000 at birth for these accounts, we are going to increase financial literacy. We're going to increase people's optimism in the market" - Besant

Currently "38% of Americans do not own equities, either directly or through some kind of a 401" with goal of eventually reaching zero through universal account program - Besant

Michael and Susan Dell contributing $6.25 billion to top up accounts, with approximately 20 states also committing to supplement the federal $1,000 base amount

Credit card companies, banks, and employers already on board with additional contributions, leveraging American generosity through "direct way to get rid of the friction of philanthropy" - Besant

"When we look back in 50 years, I think this administration will have saved or created the idea that everyone is an equity owner, that everyone has a stake in the market" - Besant

Treasury implementing "dramatic amount of financial literacy, financial education" to be pushed out to schools, teaching concept that "money can be" compounded over time

"I've talked about parallel prosperity, Wall Street and Main Street. This is the biggest merger in history" - Besant describing program's transformative potential for economic participation

Besant's personal story: "I grew up in a small town in South Carolina. The only thing I knew about Wall Street was something bad had happened in 1929" before attending Yale and moving to New York

Community Banking Deregulation and Credit Availability

"About half of them have disappeared since the GFC" - small and community banks suffered most under post-financial crisis Dodd-Frank regulations - Besant

Treasury loosening regulatory regime for community banks through Financial Stability Oversight Council as part of 2025 regulatory agenda

Community banks handle "70% of ag lending, 30%, 40% of real estate lending, 40% of small business lending" making their health critical for Main Street economy - Besant

Regulatory relief will increase lending capability and profitability, enabling banks to "be part of their communities, to lend more" with expanded credit availability for 2026 - Besant

Post-GFC example: "home in North Florida that sold for $500,000 in 2006" dropped to $150,000 but new regulations prevented lending even at attractive prices, benefiting only cash buyers - Besant

"There's three, eight banks in the US that are too big to fail" while smaller institutions face disproportionate regulatory burden being addressed by administration - Besant

First Term Trump Economic Results for Working Americans

"In President Trump's first term, hourly workers did better than supervisory workers. Bottom 50% of households had a bigger increase in net worth than the top 10%" - Besant

Administration working to "level the playing field" and increase working wages as core economic objective for second term

"We are not going to blow out the budget deficit and cause" inflation through fiscal policy, contrasting with Biden administration approach - Besant

U.S. Bond Market Performance and Global Capital Flows

"U.S. became the worldwide winner last year. We've had the best performing bond market, best performing market since 2020" - Besant citing John Maynard Keynes beauty pageant analogy

Strong performance attributed to combination of fiscal progress and market reassessment of tariffs from "doomsday machine" to "taking us to the promised land in terms of fiscal paydown" - Besant

Inflation expectations remained "well anchored" throughout 2025 despite concerns, supporting bond market stability and foreign investment appetite